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Dallas Fed's Kaplan sees 'gradual recovery' ahead for US oil patch

Wed, May 18, 2016 - 7:56 AM

Dallas Federal Reserve Bank President Robert Kaplan said on Tuesday that while he expects more bankruptcies for oil and gas producers this year, he sees energy prices firming, along with prospects for jobs and investment.

PHOTO: AFP

[TEXAS] Dallas Federal Reserve Bank President Robert Kaplan said on Tuesday that while he expects more bankruptcies for oil and gas producers this year, he sees energy prices firming, along with prospects for jobs and investment.

"I wouldn't be surprised to see firming prices in the period ahead," Mr Kaplan told reporters after an open forum with bankers and oil men in the heart of the oil-producing Permian Basin in West Texas. "That doesn't mean that 2016 is going to be an easy year ... there are still going to be companies that are going to have to be restructured."

The biggest US energy price crash in decades has forced more than 60 North American oil and gas producers to seek protection from creditors since early 2015, including two this week.

Hundreds of drilling rigs have been idled in the Permian Basin since the price of crude dropped from its peak in mid-2014, pushing the basin's rig count down to just 130 in April. But data from Baker Hughes and Drilling Info show several rigs have been added in the last two weeks alone.

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And though debt-laden companies will still need to fold or find buyers, demand and supply in the global oil market will have about evened out by next year, Mr Kaplan said. "I think you'll see a slow but gradual recovery," Mr Kaplan said.

Steve Pruett, chief executive of Elevation Resources, has kept his one oil rig operating throughout the crash.

Stopping it would have meant losing money already spent on the rig itself, and even could have cost him his land lease.

Besides, he said, each time he drills a well, he does it in less time and at lower cost, helping him create a blueprint that will speed development once the oil price returns.

"I think by this time next year, we will see sustained US$60 (per barrel) oil prices," he said, at which point he said would likely add a second rig. Current prices are just below US$50 a barrel, a long way from the US$100 per barrel they were at in mid-2014 before tumbling.

Lenders, too, are starting to warm up. "My gut says, the worst is over," says Keith Moore, president and CEO of West Texas National Bank, who was on hand for Kaplan's speech.

Oil and gas companies are not exactly knocking down his doors for loans to expand, but he expects to see an uptick in demand if oil prices keep their current level or creep higher, Mr Moore said.